How do I Report Stock Market Earnings in My Income Tax Return ?

Q1. What is the difference between intraday trading ( day trading ) and long-term investing for taxation purposes?

Intraday trading involves buying and selling stocks within the same day, and no actual delivery takes place. Hence, profits or losses from intraday trading are treated as “speculative business income” and taxed as per your income tax slab, which can range from 5% to 30% based on your total income.

Long-term investments refer to holding stocks for over a year. Gains from these are considered long-term capital gains (LTCG) and are taxed at 12.5%, but only if they exceed ₹1.25 lakh in a fiscal year. Gains up to ₹1.25 lakh are exempt from tax.

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Q2. What is the taxation rate for short-term capital gains ( STCG ) in stock trading?

Short-term capital gains ( STCG ) arise when you sell shares within 12 months of purchase. These gains are taxed at a flat rate of 15% irrespective of your total income or tax slab. This applies to all delivery-based trades (where shares are held and then sold).

Q3. How are dividends from shares taxed?

Dividends from shares are added to your total income and taxed based on your income tax slab. This has been in effect since the abolition of the  Dividend Distribution Tax ( DDT ) in 2020. Therefore, if you are in the highest tax slab, dividends will also be taxed at 30%.

Q4.Can I set off losses from intraday trading against other income?

Intraday losses (considered speculative losses) can only be set off against speculative gains. If you have more losses than gains, they can be carried forward for 4 years but can only be set off against future speculative income.

Q5. Is advance tax payment required for stock traders?

Yes, stock traders (especially day traders) need to pay advance tax if their estimated tax liability exceeds ₹10,000 in a financial year. Advance tax must be paid quarterly—15% by June 15, 45% by September 15, 75% by December 15, and 100% by March 15. Failing to pay advance tax leads to an interest penalty of 1% per month on the unpaid amount.

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Q6. Can long-term investors also claim deductions for expenses like day traders?

No, long-term investors cannot claim expenses like brokerage or internet costs as deductions.

Q7. Do I need an audit if I am a frequent trader?

An audit is mandatory if your trading turnover exceeds ₹10 crore in a financial year or if you declare a profit lower than 6% of your turnover while opting out of the presumptive taxation scheme. Audits ensure proper filing of financial statements like the Profit & Loss Statement and Balance Sheet.

Q8. How is turnover calculated for tax audit purposes in stock trading?

For intraday trading, turnover is calculated by adding the absolute profit/loss from your transactions. For delivery-based trades, the turnover is the sale value of the stocks.

Q9. Can I offset long-term capital losses against other income?

Long-term capital losses can only be set off against long-term capital gains. They cannot be offset against short-term gains or other income like salary.

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Q10.How do I report stock market earnings in my income tax return (ITR)?

Day traders should report their income as business income under the ITR-3 form. This includes both speculative (intraday) and non-speculative (delivery-based) business income. Long-term investors should report capital gains using the ITR-2 form for individual income tax returns.

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